US CPI data preview – What to expect of EUR/USD?

Cost of living as measured by consumer price index ( CPI ) in US is seen rising 0.3% m/m in April. That amounts to 1.1% annualized rise.

The core figure, which strips out the volatile food and energy component, is seen rising 0.2% m/m and 2.1% y/y. March core CPI in annualized terms stood at 2.2%.

A rebound is not a surprise

Note that rebound inflation as expected by economists is not surprising, given the oil price rally. Hence, for the USD to rally, it is imperative that the headline figure beats estimates and/or core CPI figure, especially in annualized terms, rises more than forecast.

A print weaker-than-expected whether headline or core or both, could weaken the greenback.

Moreover, markets do not seem to believe Fed officials who continue to call for a possibility of two more rate hikes this year. Hence, a weak rebound in inflation would be enough to kill whatever little June rate hike bets still existing in the markets.

Impact on EUR/USD

The pair is moving in a sort of falling channel on the hourly chart. Bears appear in control, given the pair has failed to sustain above the critical technical zone of 1.1430-1.1534.

However, a strong support around 1.13 (daily 50-SMA + rising trend line drawn from March 2015 low-April 2015 low) has restricted losses since Friday’s NY session.

A sharper rebound in CPI and/or core CPI could trigger a break below 1.13 and put the pair on route towards 1.1236 levels.

On the other hand, stage is set for a rally to 1.1360-1.1380 levels in case CPI misses estimates by a wide margin.